USA: Lidl’s Long Island locations forced competitors to lower prices
Discount Retail Chain Lidl recent store openings on New York’s Long Island pressured competing grocers in the market to reduce their prices by as much as 15%, a new study from the University of North Carolina Kenan-Flagler Business School has found. Katrijn Gielens, professor of marketing at Chapel Hill, North Carolina-based UNC Kenan-Flagler, led the independent study, which was commissioned by Lidl US.
“Given that U.S. households are facing the fastest-rising rise in food prices in a generation and a looming recession, understanding how supermarket competition can keep grocery prices at bay is more important than ever,” she noted. “Lidl’s competitive price-cutting effect is continuing to pressure other retailers to drop their prices. The data shows the effect is greater than Walmart’s entry in a new market reported by previous academic studies.”
Lidl’s prices were significantly lower than those of competing Long Island retailers, with its food prices about 45% lower than at specialty retailer Trader Joe’s (owned by Aldi). Additionally, Lidl set prices 39.6% lower than King Kullen and 33.8% lower than Stop & Shop, while at Target and BJ’s, price differences were 18.5% and 10%, respectively. For Costco, Aldi and Walmart, however, no price differences with Lidl were found.
Retailers on Long Island lowered their own prices substantially after Lidl opened new stores, compared with their prices before the retailer entered the market. The price-cutting effect was stronger than earlier academic findings regarding Walmart's entry into a new market, at which time price declines typically varied between 1% and 2.5%, or 5% at most. The recent study found that Discount Retail Chain Aldi cut its prices by 15% and Walmart by 9% after Lidl's entry; Stop & Shop and King Kullen dropped their prices an average of 5.3% to 3.8%, respectively; Costco responded to Lidl’s entry by slashing prices by 8.3%; and Target and Trader Joe’s each lowered their prices by 4%.
Despite a general trend of a more than 2% increase in grocery prices between April 2019 and March 2020, competing retailers on Long Island set their prices for individual products, including staples, considerably lower after Lidl entered the market. For more expenses items such frozen seafood, laundry detergent and olive oils, prices fell 15%; in staple categories like as pasta, butter and breakfast cereals, prices dropped more than 10% to 15%; and for some frequently purchased items, among them refrigerated drinks, peanut butter and frozen pizza, prices declined by 10%.
The results of a study Gielens conducted in 2018, showed that Lidl put significant pressure on top retailers to reduce their prices prices soon after it first opened stores. Three years after its U.S. entry, Lidl’s competitive price-cutting effect has proved to be lasting and more than offsets the trend of increasing grocery prices.
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